The UN has released a report on the latest findings about climate change. The report was created by The Intergovernmental Panel on Climate Change, a UN body responsible for the science associated with climate change. The report drew from over 14,000 previous studies to come up with a detailed analysis.
Breaking the Carbon Budget
One major finding of the report is that humans will have a carbon budget to keep temperature levels 1.5 degrees Celsius below pre-industrial levels. The carbon budgest is the amount of carbon emissions that can be released before 1.5 degrees Celsius is not reachable. Currently, humans are on track to burn through that budget in 10 years.
Extreme Weather
The report also mentions a drastic increase of extreme weather. Heatwaves are becoming increasingly more common as are intense snow or rainfall. As well, forest fires are becoming greater and greater, especially as forest fire season grows longer and longer.
Placed Blame
In previous UN reports, humans were likely to blame for climate change and global warming. However, this report has placed the blame solely on humans by stating โIt is unequivocal that human influence has warmed the atmosphere, ocean and land. Widespread and rapid changes in the atmosphere, ocean, cryosphere and biosphere have occurred.โ
carbon credits, carbon markets, carbon neutral, carbon news, carbon prices, carbon projects, climate change, renewable energy, net zero, nuclear energy, nuclear power, nuclear reactors, climate change, climate action, carbon capture, carbon emissions, voluntary carbon market, compliance carbon market, decarbonizationcarbon credits, carbon markets, carbon neutral, carbon news, carbon prices, carbon projects, climate change, renewable energy, net zero, nuclear energy, nuclear power, nuclear reactors, climate change, climate action, carbon capture, carbon emissions, voluntary carbon market, compliance carbon market, decarbonizatioFueled by climate change and the now unstoppable global trend of decarbonization, carbon credits are gaining a momentum that will carry them into every area of human life in the coming years.
If youโre looking at this market for the first time, letโs cover some basics. Every person has a carbon footprint. While the numbers vary dramatically from country to country, a person in Canada or the U.S. is responsible for around 15.5 tonnes of carbon dioxide emitted each yeari. That means, should you live to 90 years of age, youโll have been responsible for generating around 1,395 tonnes of carbon dioxide, or the equivalent emissions from 300 passenger vehicles in one year.
Obviously not every activity emits an equal amount of carbon dioxide and some activities, like planting a tree, actually have the opposite effect by absorbing carbon dioxide from the atmosphere. And thus we enter the world of carbon taxes, carbon pricing and carbon credits.
Carbon credits (also known as carbon offsets), which have been around for over fifteen years, have a straightforward goal: penalize polluters and, by doing so, apply pressure for change. The approach is even more simple: make carbon emissions more expensive so that companies find ways to reduce or eliminate their emissions.
Of course, not every industry can move to a carbon neutral business model at the flick of a switch. Think, for example, of companies still reliant on fossil fuel for electricity. This is where the carbon markets step in by enabling companies to purchase carbon credits to offset those emissions that they cannot yet eliminate.
Reducing their carbon footprint in this way helps some companies avoid penalties or fines. Critically, it also appeases shareholders and consumers.
The Compliance and Voluntary Markets
There are two types of carbon markets: Compliance and Voluntary. In 2020, the Compliance carbon markets grew by 21%, with transactions totaling over US$260 billionii. The Voluntary carbon markets, estimated at US$320 million in 2019iii, need to grow by 15x by 2030 to support the investment required to meet the goals of the Paris Agreement.
So how do they differ? The Compliance markets, like those operated by the European Union and the State of California are very much a government-created cap and trade scheme. While speculation is allowed, these are carbon markets for companies in industries where governments are actively trying to reduce emissions, such as power generation or transportation.
The Voluntary markets are where you, as an individual, or a company can offset your carbon footprint without reserve pricing or fines waiting to punish non-compliance. These markets are for companies that want to voluntarily reduce their carbon footprint for a few critical reasons.
One: Shareholders are demanding it. Climate change is the #1 issue for ESG asset managers in the U.S., and large asset managers like BlackRock and Vanguard have pledged net-zero emissions across their portfolio holdings by 2050 and are holding companies accountable to climate goals. Recently, shareholders replaced three Exxon Mobil directors seen as insufficiently addressing climate change, while Chevron shareholders approved a proposal for the company to reduce emissions from customers use of its fuel.
Two: Consumers are demanding it. People have begun to think about how their personal consumption impacts climate change. A growing number of people are willing to pay a higher price for a carbon neutral product or service or pay directly at check-out to offset the carbon footprint of their purchase. In doing so, they are supporting the carbon markets as they demand climate action from the companies that they use.
Three: Regulators are requiring it. Legislation has already been introduced in a number of countries that require companies to disclose climate risk. Following a meeting earlier this month, the leaders of the G7 – a group of advanced economies, including the United States, the United Kingdom, Canada, France, Germany, Italy, and Japan – all agreed that โmandatory climate-related financial disclosuresโ should be implemented. Many companies will soon be faced with mandatory climate disclosures and will look to the voluntary carbon markets to purchase carbon credits to offset their emissions or face reputational risk.
Putting a price on carbon credits
Prices for carbon credits vary depending on several factors. For instance, while a tonne of carbon dioxide remains a tonne the world over, depending on where it originates, what the nature of the project is, and other factors, price can vary significantly. Many carbon credits also have co-benefits, such as preservation of biodiversity or job creation, which can attract premium pricing.
There are also different certification bodies that validate the quantity and quality of carbon credits. Vintage, which refers to the year the emission reduction occurred, also influences the price. Carbon credits are listed on a registry and can be held or sold more than once, however, once it is used to offset an emission, it is retired and cannot be resold.
Investing in carbon credits
Carbon Streaming Corporation (NETZ:Canada, OFSTF:OTC) aims to give investors exposure to both the voluntary and compliance carbon markets.
We are investing in high quality, high profile projects that will generate a strong flow of carbon credits over multiple decades. Our investments will deliver a โstreamโ of carbon credits that we will then be able to sell in the voluntary carbon markets or hold on to for long term price appreciation.
Deutsche Bankโs asset management arm, DWS Group, is under investigation after the former Head of Sustainability, Desiree Fixler, claimed they overstated how much sustainable investing criteria was used to manage assets.
DWS Group has over $1 trillion in assets under management.
Once news broke, the DWS Groupโs stock price fell 13% in 24 hours.
The investigation, launched by the U.S. Securities and Exchange Commission (SEC) and federal prosecutors in Brooklyn, New York, is still in its early stages.
With environmental, social, and governance (ESG) initiatives rising, the SEC has established a 22-person task force to investigate ESG investment disclosures โ and other global regulators have joined in.
The goal is to prevent โgreenwashingโ โ disclosure-related fraud involving ESG investments.
If youโre wondering why companies would want to โgreenwashโ their investments so that they appear more favorable, consider this:
ESG investments totaled $51B in the U.S. as of 2020.
Morningstar reports that assets in ESG funds have surpassed $2 trillion globally during the second quarter of 2021 alone, with investments on track to exceedย $53 trillion by 2025 (according to Bloomberg).
According to Bank of America, ESG investing could rise by $15 trillion to $20 trillion over the next decade due to changing demographics. In other words, Millennials and Gen Z care about the environment and want to invest in its future.
Because of SEC oversight, investors can now feel confident as they invest in various ESG funds since they will no longer be green in title only.
Unfortunately for Deutsche Bank, the struggle to restore its brand may continue.
After several investigations concerning their long-term client, former President Donald Trump, and a $125 million penalty regarding foreign bribery schemes and manipulated precious metals markets, this new investigation may be more challenging to recover from.
As of now, no statement from DWS Group or Deutsche Bank has been released.
The ESG industry and investors alike are watching closely to see what happens.
BRIC nations have called the EUโs Carbon Pricing Schemes โdiscriminatoryโ, aligning themselves with India who took a stand against the carbon tax. These nations โ Brazil, Russia, China and South Africa โ have released statements opposing the EUโs plans to stand with India.
The EUโs plan would tax foreign carbon imports as if they were made in the EU. As a result, this would massively restrict world trade, especially from nations with less carbon legislation.
BRIC nations have opposed the EUโs plan, but are working on the reduction of emissions jointly. As well as working on carbon emissions, BRIC nations are also looking at water and air pollution in urban areas.
The major climate change conference, COP26, is coming up in November. This conference provides a massive opportunity for BRIC nations to make their ideas heard and possibly affect future carbon legislation. As well, legislation could be introduced to reduce air and water pollution in addition to biodiversity loss.
BRIC nations realize that climate change is an urgent matter. Indiaโs environment minster Bhupender Yadav outlined the impending danger of climate change saying the world faces a โnow or neverโ situation. The recent IPCC report has provided the BRIC nations a reason to act. Collective global actions will need to be taken to stop climate change.
The purchase of eight new zero-carbon tankers is only the beginning.
Maersk is committed to launching an entire carbon-neutral fleet by 2030.
These eight new vessels, built by Hyundai Heavy Industries, will prevent 1 million metric tons of carbon from being pushed into the atmosphere โ a reduction of nearly 3%.
Green methanol is a newer, carbon-neutral fuel produced using biomass or renewable hydrogen combined with carbon obtained from biomass or capture. Hyundai designed the ships to run on both green methanol and standard fuel since there is currently not enough carbon-neutral fuel available within the market. This should change over time.
Last year Maersk emitted 33 million tons of carbon into the atmosphere.
While some may feel eight ships isnโt enough effort, it is undoubtedly a solid and impressive start.
Maerskโs new ships are expected to launch in 2024 and will carry 16,000 containers each.
The vessels are 10-15% more expensive than the normal vessels Maersk has purchased in the past (costing $175M each ship). However, it is well worth the investment. Many of Maerskโs customers โ such as Amazon, Disney, and Microsoft – are focused on cutting their emissions โ and the supply chain process for their goods is a part of that.
Nearly 3% of all carbon emissions are a result of ocean transport. Since 90% of world trade happens by boat, you can expect many other shipping companies to follow Maerskโs lead.
As more and more consumers recognize the importance of reducing carbon emissions, demand for zero emissions, green methanol, and other environmentally friendly fuels will only increase.
EU carbon futures have shot up to above โฌ59/mt, the highest price so far in the history of the future. EU carbon futures have been slowly approaching the โฌ59/mt mark since early July, however, have not broken through. But futures shot up today due to the current strength of the energy sector.
Additionally, supply has been cut drastically from government auctions in primary supplies. As well, beginning August 30, only three auctions will occur due to holidays and closures, meaning a reduced supply.
The EU ETS has been slowly growing since the beginning of the year when it started at around โฌ33/mt. It hit โฌ40 in February and then โฌ50 in May. Now it approaches the โฌ60 mark, almost double what the futures started the year at.
The UKA prices continue to stay flat. The UK has yet to unveil its major plans towards carbon emissions. The KRBN ETF continues to rise as it rose just under 5% today. The carbon market has shown its strength this year. As more countries begin to roll out further carbon restrictions, we may see a shift in carbon ETFโs and futures. The race against climate change is heating up. Urgent action is required and that may include higher carbon prices.
Shipping company Maersk (Ticker AMKBY) has purchased 8 carbon neutral tankers to prove its commitment towards a green future. The carbon neutrality in the tankers comes from low emitting methanol fuel.
The shipped are pegged to be completed in 2024 saving 1 million tons of carbon emission. In addition, the ship capacity will be 16,000 shipping containers.
Hyundai will be providing the facilities to build the tankers. Currently, each tanker comes in at a price tag of $175 million meaning the total investment will be around $1.4 million. As well, there are talks of Maersk buying four more additional tankers.
Many large companies such as Apple and Amazon have set carbon neutrality targets. Now, the shipping industry is taking steps towards a net-zero future. The shipping industry accounts for 3% of carbon emissions worldwide. Moving the shipping sector towards carbon neutrality is a huge step in the fight against climate change.
The CEO of Maersk is committing to a greener future, saying โThe time to act is now if we are to solve shippingโs climate challengeโ. In addition, the company said it was committed to helping customers seek a greener future, as well as helping customers decarbonize supply chains. This is a huge step in the shipping industry towards carbon neutrality.
Scope 3 carbon emissions are emissions that do not come directly from a company or assets they own. Nonetheless, those emissions are still emissions. Emissions that fall under this category include emissions from the transportation of the good or how a consumer uses the product. With all this information, the SEC is still considering whether to include these emissions when considering the carbon neutrality of companies.
The problem when considering indirect emissions into regulations is that they are usually the largest and hardest to detect. How can a company find out how consumers use their product? It requires a lot of assumptions into calculating final numbers, many of which are wrong.
The IPCC report that outlines the impending danger of climate change urges immediate action. The SEC mentioned that many companies offer voluntary disclosures regarding scope 1 and 2 emissions. They have also discussed with companies how to disclose indirect emissions. There is still nothing concrete about how companies should disclose their emissions yet.
Scope 3 emissions account for around 65-95% of a companyโs total carbon output. In turn, indirect emissions, therefore, have the most potential for reductions. But scope 3 emissions should be released and open if there is to be any reduction of emissions to keep companies accountable.
Carbon dioxide emissions are a leading cause of climate change. But there are other Greenhouse Gases that are also affecting climate change.
Based on a recent UN study, Methane gas was found to be 80 times more potent than carbon dioxide in terms of warming power change.
While reducing carbon emissions is important as ever, methane emissions will need to be reduced quickly as well.
According the IPCC, a UN body responsible for climate change, methane levels are at their highest point in 800,000 years.
The high level of methane goes hand in hand with the temperature increases seen across the globe. To keep under the limit set by the Paris agreements, restrictions could be implemented to curb further temperature increases.
Methane is the key ingredient in natural gas, used to heat homes everywhere.
It is produced in nature by plants and also produced by livestock and landfills, as well as the oil and gas sectors.
While natural gas is less harmful than using coal as a power source, it is not perfect.
Any leaks from natural gas pipelines could be extremely harmful to the atmosphere. Leaks also occur from oil and gas deposits as well.
The U.S. government has been looking at ways to view methane. With infrared cameras and satellites, scientists can see where large leaks are happening on a national level.
More work will need to be done to reduce methane emissions. Obviously, changes to the oil and gas industry will come, but restricting the livestock industry could come with severe consequences.
The UN recently released a report outlining the urgent dangers of climate change. This has led to debates about how individual countries are implementing carbon laws to reduce emissions, specifically Germany.
A British MP stated that major countries are vital to reducing the effects of climate change. One such country being targeted by the MP, John Redwood, is Germany. Mr. Redwood is quoted as saying “It’s only going to work if Germany, which puts out twice as much as we do, starts to take the issue seriously and closes down its coal power stations.”
According to the European Environment Agency, Germany produced 853.3 Mt of carbon dioxide emissions in 2019. In the same year, the UK produced 365.1 metric tons of CO2. The evidence does support Mr. Redwoodโs claims.
However, many factors come into play for these numbers. Manufacturing is a large industry in Germany. 23% of Germanyโs GDP comes from manufacturing, compared to 11% of the UKโs GDP. Manufacturing is a high-emitting industry.
In addition, the UK has a smaller population. Around 17 million more people live in Germany.
One massive problem facing the central European nation is its reliance on coal power. Around 25% of German power comes from coal power plants. Coal is one of the worst ways to produce power in terms of reducing carbon emissions.
Germany has pledged to remove all coal power plants by 2038 but that may not be fast enough to stop climate change.
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The Voluntary markets are where you, as an individual, or a company can offset your carbon footprint without reserve pricing or fines waiting to punish non-compliance. These markets are for companies that want to voluntarily reduce their carbon footprint for a few critical reasons.
